Open Word and answer the following questions. Save the document and print it when you are done. 1. Use the equation that follows to solve for YourRisk∗ (x 1 ) and YourReturn∗ (x 2 ) in terms of the...

Open Word and answer the following questions. Save the document and print it when you are done.

1. Use the equation that follows to solve for YourRisk∗ (x₁) and YourReturn∗ (x₂) in terms of the exogenous variables. Show your work.

2. Use your reduced-form solution to find the sigma elasticity of YourRisk at σ = 20% (and the values of the other exogenous variables from the initial position of the OptimalChoice sheet – click the reset button if needed). Show your work.

3. Use Word’s Drawing Tools to draw a well-labeled graph that depicts the total, income, and substitution effects for YourRisk. Make the substitution effect greater than an opposing income effect.

4. Compute the total, income, and substitution effects for YourRisk for the change in sigma from 20% to 25%. Show your work and describe your procedure.